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A Case Study of Using Blockchain Technology in Regulatory Technology

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 A Case Study of Using Blockchain
Technology in Regulatory Technology
This article explores the potential for applying blockchain technology for regulatory
compliance and for reducing compliance costs and easing regulatory burdens. We
describe the development of the Project Maison proof-of-concept blockchain system
for regulatory reporting of mortgages in the U.K. This case study identified use cases
and also the risks of increased supervision and loss of control and the governance
challenges and trade-offs inherent in applying a decentralized approach to regulatory
reporting.1

Daniel Gozman Jonathan Liebenau Tomaso Aste

University of Sydney London School of Economics University College London
(Australia) (U.K.) (U.K.)

The Financial Crisis and the Emergence of “Regtech”1

Regulatory technology, or “regtech,” is a relatively new term used to describe the emergence
of new technologies designed to ease the increasing burden of regulatory compliance and
effective risk management placed on organizations in recent years, often as a response to
organizational failures and malfeasance.2 Regtech has its roots in the 2008 financial crisis and
the resulting “tsunami” of regulations introduced globally as a response.
Key contributing factors to the crisis included the rapid growth of credit extension (typically
in residential mortgages), which fueled property price booms accompanied by looser credit
standards (subprime mortgages) and the related reduction in interest rates on investments
deemed “risk-free.” This created strong desires amongst investors to offset the decline in
interest rates by earning as much as possible above the risk-free rate.3 To satisfy this increased
demand for higher yields, the speed of financial innovation increased and led to an increase
in the volume and complexity of financial products, including those backed (securitized) by
mortgages and often referred to as mortgage-backed securities (MBSs). However, keeping track
of the different types of mortgages packaged into MBSs was nigh on impossible, which meant
the related risks became increasingly opaque. Frequently, credit rating agencies misjudged the
risks associated with MBS, and clear conflicts of interest existed where rating agencies helped
develop new such products and rate them.
Poor understanding of the systemic and underlying risks inherent in MBSs and other
securitized products, and in collateralized debt obligations (CDOs) and related credit default
swaps (CDSs), were major contributory factors to the global financial crisis of 2008 and the
resultant depression.4 The chairman of the U.K. regulator (at that time the Financial Services

1  Rajiv Sabherwal is the accepting senior editor for this article.

2  Examples include Sarbanes-Oxley Regulations introduced as a response to Enron, Worldcom and other corporate failures, and
recent data protection and privacy regulations such as the EU’s General Data Protection Regulation (GDPR).
3 The Turner review: A regulatory response to the global banking crisis, Financial Services Authority, March 2009, available at
https://webarchive.nationalarchives.gov.uk/20090320232953/http://www.fsa.gov.uk/pubs/other/turner_review.pdf.
4 Ibid
DOI: 10.17705/2msqe.00023
March 2020 (19:1) | MIS Quarterly Executive 19
A Case Study of Using Blockchain Technology in Regulatory Technology
Authority) observed, just after the crisis, that
across global markets there was an assumption
that by,
“slicing and dicing, structuring and hedging,
using sophisticated mathematical models to
understand and manage risk, we can ‘create
value’ by offering investors combinations of risk
and return which are more attractive than those
available from direct purchase of the underlying
credit exposures.”
In response to the crisis, financial regulators
worldwide set about tightening the regulation of
financial companies and products. One observer
of the industry estimates that by 2020 over
300 million pages of regulatory documents will
have been published in the U.K. alone.5 These
regulations require greater transparency and
reporting of organizational governance and
related financial and nonfinancial risks, which has
inevitably resulted in higher levels of bureaucracy
and costs.6 Globally, banks are now spending
over $270 billion per year on compliance
and regulatory obligations and between 10%
and 15% of their employees are focused on
compliance. Across the U.S. and Europe, banks are
now spending as much as $20 billion a year on
technologies for regulatory compliance.7
As a result, the cost of compliance has
risen considerably for many financial services
firms. There is a negative correlation between
a bank’s size and the proportionate costs of
compliance—i.e., smaller financial organizations
spend a greater proportion of their expenses on
compliance than larger ones. Overall, the cost and
complexity of regulatory compliance and related
risk management activities are an important
barrier to entry for new fintech players8 and so
may act to dampen competition.
5  Groenfeldt, T. Financial Regulations Will Surpass 300 Million
Pages by 2020 Says JWG, Fintech – News and Analysis, April 16,
2018, available at https://techandfinance.com/2016/04/20/financial-
regulations-will-surpass-300-million-pages-by-2020-says-jwg/.
6  Graeber, D. The Utopia of Rules: On Technology, Stupidity, and
the Secret Joys of Bureaucracy, Melville House Publishing, 2015.
7  Mesropyan, E. RegTech – The Greatest Opportunity in FinTech,
MEDICI Global, Inc., June 5, 2018, available at https://gomedici.
com/regtech-the-greatest-opportunity-in-fintech/.
8  Firms that provide computer systems and other technology used
to support or enable banking and financial services.
20 MIS Quarterly Executive | March 2020 (19:1)
Using Blockchains for Regtech
Applications
Spotting an opportunity, entrepreneurs
are developing new ways to help financial
organizations and regulators automate and
simplify compliance and thus reduce costs,
often through innovatively using and combining
emerging technologies such as blockchain.9
Blockchain technology, originally used as the
architecture for Bitcoins,10 emerged just a year
into the financial crisis and was a technological
response to some of the many kinds of
dissatisfaction with financial services.11 Not only
did it seem that some organizations, such as the
largest banks and insurance companies, were
“too big to fail,” it also seemed that the regulators
were too ill-equipped to monitor and too weak to
enforce compliance. Furthermore, it seemed clear
that the technologies used by financial firms and
the architectures into which they were designed
were exacerbating the problem and leading,
many claimed, to systemic risk through loss of
discretion and hard-coded inflexible processes.12
Enterprise blockchains are seemingly
eminently suited for addressing some of the
unique problems in mortgage lending and
tracking risk. Blockchain architectures offer
almost real-time decentralized sharing of
information across organizations where trust
is scarce, (e.g., between the regulated and the
regulator and among competing banks). They also
provide ways in which the veracity of compliance
data can be trusted and they create an immutable
audit trail that can be easily accessed.13
Thus, blockchains facilitate the reporting of
transactions in a way that does not necessarily
9  Gozman, D., Liebenau, J. and Mangan, J. “The Innovation
Mechanisms of Fintech Start-Ups: Insights From SWIFT’s Innotribe
Competition,” Journal of Management Information Systems (35:1),
March 2018, pp. 145-179.
10  Nakamoto, S. “Bitcoin: A Peer-to-Peer Electronic Cash System,”
2008, available at https://bitcoin.org/bitcoin.pdf.
11  Gozman, D. and Currie, W. “The Role of Investment Manage-
ment Systems in Regulatory Compliance: A Post-Financial Crisis
Study of Displacement Mechanisms,” Journal of Information Tech-
nology (29:1), March 2014, pp. 44-58.
12  Danielsson, J. Global Financial Systems: Stability & Risk,
Pearson, 2013.
13  Rauchs, M., Glidden, A., Gordon, B., Pieters, G. C., Recanatini,
M, Rostand, F. Vagneur K. and Zheng Zhang, B. Distributed Ledger
Technology Systems: A Conceptual Framework, Cambridge Centre
for Alternative Finance, August 2018, available at https://papers.ssrn.
com/sol3/papers.cfm?abstract_id=3230013.
misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology

Figure 1: Current Regulatory Reporting Process for U.K. Mortgage Sales

Bank 1 Bank 2 Bank 3
Mortgages Sold Mortgages Sold Mortgages Sold

Quarterly Mortgage Records Mortgage Records Mortgage Records

Cycles Processed by Bank 1 Processed by Bank 2 Processed by Bank 3

Consolidation of Consolidation of Consolidation of Feedback

Bank 1 Records for Bank 2 Records for Bank 3 Records for
Loop
Time Period T Time Period T Time Period T

Review of Aggregated Review of Aggregated Review of Aggregated

Mortgage Records by Mortgage Records by Mortgage Records by
Bank 1 Compliance Team Bank 2 Compliance Team Bank 3 Compliance Team
Bank of
England
Financial Conduct Authority’s Gateway System (BoE)
Feedback
Loop
Council of
Mortgage
Financial Processing of Banks 1-3 Mortgage Records by the FCA Lenders
(Aggregating/Validation/Reconciliation/Sign Off) (CML)

Up to 7
FCA’s Business Intelligence Data Warehouse Feedback
Working Days
to Access
Loop
Clean Data
Mortgage
Supervision Data
Sector
Team Quality
Team

undermine the general roles and responsibilities
of lenders and regulators and that increases
the transparency of risks. (See Appendix A
for examples of possible uses of blockchain
technology in enterprise applications.)
The Context for our Case
Study
As a consequence of the financial crisis,
the burden of compliance has dramatically
increased. For some policy makers, this has
meant adopting a new attitude and accepting
new ways of using technology to manage more
complex and numerous regulatory obligations.
For example, the number of governance and
risk and compliance (GRC) departments in
financial services firms has grown considerably,
and these departments are looking to use
emergent technologies such as AI/automation/
analytics, advanced quantitative methods for risk
management, and data wrangling.14 Regulators
are also exploring the use of new technologies
to reduce the burden of compliance. In other
words, there is growing interest in regtech,15 and
in some countries, such as the U.K., regulators are
encouraging the extension of regtech activities.
The U.K.’s main financial services regulator, the
Financial Conduct Authority (FCA), recognizes
14  Data wrangling, also referred to as data munging, is the process
of transforming and mapping data from one “raw” data form into
another format with the intent of making it more appropriate and
valuable for a variety of downstream purposes such as analytics.
15  Gozman, D., Liebenau, J. and Mangan, J., op. cit., March 2018.

March 2020 (19:1) | MIS Quarterly Executive 21

A Case Study of Using Blockchain Technology in Regulatory Technology
that encouraging competition among fintech
providers will lower barriers to entry created by
regulatory requirements and thus enable new
forms of innovation. The U.K. regulator is unusual
in this respect in that its stated objectives not
only include the usual requirements of a financial
services regulator to protect consumers and
manage systemic risk and economic stability, but
also promote competition.
This, then, is the context of Project Maison,
the case study we draw on and describe in this
article. (The research conducted to prepare this
case study is described in Appendix B.) Project
Maison is a rare example of a pilot blockchain
application that, unusually, has been developed in
conjunction with direct support from a regulatory
authority and facilitated by one of its programs.
By addressing three opportunities afforded by
the context described above and new technology,
two major global banks and the blockchain
consortium software systems developer, R3, along
with the FCA, collaborated to design a system
for reducing the cost and difficulty of regulatory
reporting.
Although many other financial services-related
blockchain pilots claim to involve regulators
at some level, none that we have found to
date have done so in such close collaboration
with a regulator, nor have they been designed
specifically for regulatory purposes and systemic
risk management. Project Maison focuses on
regulatory compliance and draws together
multiple stakeholders, including the regulator,
to develop a new technology for compliance in
the U.K. mortgage market. This proof-of-concept
pilot system uses some of the distinct features
of blockchain technology to link information
and actions associated with mortgage lenders,
borrowers, and the regulator.
Although the Project Maison case is specific
to financial services, our findings are relevant
to academics and managers operating in other
highly regulated industries, such as farming
and agriculture, construction, aviation and
transport, defense, health, energy, telecoms,
pharmaceuticals, education, and law.
In the rest of this article, we:
●● Describe how the Project Maison system
works, in particular how it uses blockchain
technology to distinguish itself from
traditional forms of regulatory reporting
22 MIS Quarterly Executive | March 2020 (19:1)
●● Describe how the system was designed to
bring multiple benefits in diverse areas
such as risk management, customer
experience, and resource efficiencies
●● Identify the governance trade-offs
challenges that arose as a consequence of
the system design
●● Describe actions that can be taken to
address the challenges.
Project Maison Case
The Problems Addressed by Project
Maison
Regulatory reporting is a large part of
the FCA’s remit. It regulates over 13 million
mortgages, with more than 250,000 new
mortgages sales per quarter.16 U.K. mortgage
providers collectively are therefore currently
spending a significant amount on regulatory
reporting, with extensive and duplicated
reporting processes across different firms.
The information provided to the FCA allows it,
along with the Prudential Regulatory Authority
(PRA) and other parts of the Bank of England, to
assess the capital adequacy and risk exposure of
systemically important financial institutions. The
PRA and Bank of England are particularly focused
on the prudential supervision17 of banks, building
societies,18 credit unions, and insurers, including
those whose size introduces systemic risk to the
U.K. and to financial systems beyond.
The existing reporting practices are the
primary means through which the FCA
understands an individual financial institution’s
risk exposure and the collective risks present
in the mortgage lending industry. The reporting
process also allows regulators to learn about
each institution’s business profile and risk
strategy. At present, related information is often
sent to multiple departments to be used in
16  Source: UK Council of Mortgage Lenders, 2016.
17  Prudential regulation is designed to ensure that entities such as
banks, insurance companies, and pension fund trustees are capable of
keeping the financial promises made to consumers. Although histori-
cally directed toward issues such as capital adequacy, operational risk
and liquidity management, prudential regulators have in more recent
times started to engage with issues such as governance and risk man-
agement more generally. For more information, see https://clmr.unsw.
edu.au/domains/prudential-regulation.
18  In the U.K., building societies offer banking and related financial
services, especially savings and mortgage lending. They are mutual
organizations owned by their members.
misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology

Table 1: Current Problems of Centralized Regulatory Reporting

Current Problems Description
1. Data Quality and Formatting
Consistency of the data made available is the most critical problem for the FCA.
Data Consistency Values are cross-checked on its system across different reports and a single view of
reported data is required.
Data granularity is a problem for banks when regulatory rules change. Furthermore,
when banks change their mortgage products they incur costs to determine what
Data Granularity
reporting is required and to map to revised products to the FCA rules handbook,
which may ultimately prohibit innovation.
Firms are unsure of what datasets they must submit and what datasets are
required/useful for the FCA. Data submission is a predominately manual and
Datasets and Formats
time-consuming process. Firms use multiple formats and ways of gathering and
submitting reports (API, XML, report, manual).
Adjustments must be made early enough in the reporting process to prevent having
Consistent Adjustments to make the same adjustments in several reports, but the fact an adjustment was
made is not always clear.
2. Governance, Transparency, and Accountability
Determining data lineage has been a problem, and although solutions have
been implemented across the industry to mitigate this issue, they have not been
Data Lineage and entirely satisfactory. Problems caused by data aggregations that occur at increasing
Provenance distances from the source continue to grow.
Data provenance issues persist as data is frequently manipulated to meet
requirements.
Firms spend much time and cost on manual data collation and internal reconciliation
Reconciliation
from multiple sources and on meeting regulatory reporting deadlines.
3. Consistently Interpreting and Applying Rules and Obligations to Customers
Firms spend large amounts of money on compliance departments or have to hire
Complexity of Process experts to make sense of the FCA rules handbook, making the process very costly
and expensive.
Barriers to Entry Hard for the FCA to understand whether smaller firms need to be regulated at all;
(Regulator benefit) regulation is a serious barrier to entry that prohibits innovation in other sectors.
Product Mapping A problem primarily for the FCA when banks have different implementations of the
(Regulator benefit) FCA rules (which are easy to misinterpret and misunderstand).

reports focused on different areas of risk. The
FCA’s director of Market Intelligence, Data and
Analysis19 explained that these reporting methods
inform the ways in which the FCA prioritizes its
activities.
Figure 1 outlines the existing centralized
architecture for regulatory reporting for the
sale of mortgage products. Key shortcomings
include extensive use of manpower and the
19  To preserve the anonymity requested by our interview par-
ticipants we do not distinguish between roles and organizations in
quoting members of the Project Maison team and other stakeholders.
Where specific titles have been used, the quotes are already in the
public domain.
number of working days required by both the
banks and the regulator to process, consolidate,
and review the information being processed
and transmitted. Each bank has a large team of
“submitters” to process, consolidate, and review
details of individual mortgage sales. Much effort
and resources are employed in ensuring the
veracity of the data through feedback loops. This
process is time consuming and involves quarterly
or monthly submissions to the regulator’s
gateway system, thereby adding a further layer of
complexity.

March 2020 (19:1) | MIS Quarterly Executive 23

A Case Study of Using Blockchain Technology in Regulatory Technology
Once the regulator receives the data from
different lenders it performs its own process of
collating, validating, and reconciling the data
from different banks, which further delays a
holistic understanding of the mortgage sales
reported. Often this process will reveal errors and
queries, which require feedback from the relevant
banks. Data is stored in the regulator’s business
intelligence data warehouse. This data warehouse
is accessed by teams within the FCA, including
the data quality team, which provides feedback
on processing activities and, ultimately, the data’s
veracity.
The FCA’s system also interfaces with other
industry participants that are required to
analyze mortgage data, including the Bank of
England and the Council of Mortgage Lenders.
Overall, the architecture described in Figure 1 is
centralized with all banks reporting into the FCA’s
system, which then acts as a conduit hub to other
industry participants. This approach requires
data from disparate systems from numerous
banks, all operating different technologies with
separate data schema, to be drawn together.
Much time and resources are needed to unwind
the complexity created by processing data from
multiple systems, some of which may be legacy.
Our interview participants described many
problems with this approach, as summarized in
Table 1.
A key assumption of the U.K. regulators (the
FCA and PRA) and the Bank of England is that
improving the transparency of the mortgage
market through improving the frequency and
accuracy of regulatory reporting will lead to
better understanding of systemic risks, not
least, those created by MBSs, CDOs, and related
CDSs. However, the FCA’s head of Regtech and
Advanced Analytics emphasized that reporting
was becoming increasingly problematic for
firms, given the greater supervisory intensity
and new rules introduced since the financial
crisis. He explained, “We know that firms face
challenges in how they meet their obligations to
report information to us. We think there’s a real
opportunity for technology and innovation to
reform how they do that.”
24 MIS Quarterly Executive | March 2020 (19:1)
Development of the Prototype Project
Maison System
The FCA began to address the problems of the
current regulatory reporting procedures at its
2016 TechSprint.20 The Project Maison prototype
system was developed during this event. The
FCA’s head of Regtech and Advanced Analytics
explained that the purpose of the TechSprint was
to address how data provision could be made
more efficient and effective, and thus better allow
the FCA to better understand a bank’s compliance
practices and determine risks to its statutory
objectives. The FCA’s director of Strategy and
Competition also commented on TechSprint’s
purpose:
“TechSprint is a really good way of bringing
together some of the established players in
the market, fintech players, some of the most
interesting tech companies that we deal
with, and regulators in an atmosphere of
collaboration. One of the things we want to try
and do here is really unlock the potential that
there is in regulatory reporting and try and find
collaborative solutions that are more efficient for
the future.”
Given TechSprint’s focus on collaboration
between different players, including regulators,
tech firms, financial institutions, and fintechs,
it was natural for the participants to explore
the use of blockchain technology to improve
regulatory reporting and data sharing. Two
top-tier U.K. mortgage lenders (both banks)
collaborated and created a joint team comprised
of members of each bank’s emerging technology/
innovation teams. They named their effort to
build a blockchain system for mortgage reporting
“Project Maison.” The project addressed the
obligation for regulated mortgage lenders and
20  Starting in 2016, the FCA began running a series of “Tech-
Sprints,” described as, “… two-day events that bring together
participants from across and outside of financial services to develop
technology-based ideas or proof of concepts to address specific
industry challenges. These events help [the FCA] to shine a light on
issues and expand the discussion and awareness of potential solu-
tions.” The FCA’s TechSprints have been directed at different themes
including “consumer access” and “financial services and mental
health,” and two sprints have focused on “regulatory reporting.”
misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology

Figure 2: The Project Maison System Has a Decentralized Architecture22

Maison DLT Network
Bank and Financial Conduct Authority’s Network: Processing, Consolidation
and Review at Each Node

Bank 1 Bank 2 Bank 3

Mortgage Mortgage Mortgage
Records Records Records

Mortgages Con- Node Node Node

Sold trol

Node
Near Real-time or
Financial
Weekly/Monthly/
Conduct
Quarterly Reporting
Authority

Land Registry
Surveyor
Solicitor

Bank of
England
Mortgage
(BoE) Sector
Data
FCA’s Business Quality
Intelligence Team
Data Warehouse

Council of
Supervision Team
Mortgage
Lenders
(CML)

administrators to submit statutory forms21 The Project Maison application is based

containing data that enables the FCA to
understand how a bank’s lending impacts their
business profile. 22
21  The FCA requires regulated mortgage lenders and administrators
to submit a Mortgage Lending and Administration Return (MLAR)
form every three months, 20 business days after the reporting period
end date. Each MLAR outlines data on a bank’s mortgage lending
activities. Regulated mortgage lenders must also submit a PSD001
(Product Sales Data) form within 20 working days of the end of each
calendar quarter, and also a PSD007 (Product Sales Data Perfor-
mance) form within 30 working days from the end of each calendar
half-year—i.e., January, to June 30 and July 1 to December 31.
22  Source: Financial Conduct Authority, R3 and the two banks
involved in the Project Maison team.
on R3’s DLT (distributed ledger technology)23
platform. Founded in 2014, R3 is a consortium
of about 80 corporations, many of them financial
institutions, collaborating to build a blockchain-
based platform (called Corda Enterprise)24 for
the finance industry. R3 describes Corda as being
able to “record, execute and manage institutions’
financial agreements in synchrony, with point-
to-point communication to ensure the privacy
23  DLT is an umbrella term applied to a variety of concepts and
ideas, including blockchain. For more information, see Rauchs, M., et
al., op cit., August 2018.
24  R3 describes Corda Enterprise as “an open source blockchain
platform” (https://www.r3.com/platform/).

March 2020 (19:1) | MIS Quarterly Executive 25

A Case Study of Using Blockchain Technology in Regulatory Technology

Table 2: Mapping Project Maison Benefits to Corda’s Blockchain Properties25

Project Maison Benefits Corda Enterprise Blockchain Properties
1. Enhancing data
Shared recordkeeping and cryptographically validated (“signed”) transactions. Multi-
quality and standardize
party consensus regarding recording of transactions and formatting of reporting.
formatting
2. Improving governance,
transparency, and Enables a network of independent participants to establish a consensus around
accountability across mortgage reporting outcomes. Persistent and replicated data across nodes. Tamper
the mortgage product resistance and evidence of tampering attempts.
lifecycle
3. Consistently
interpreting and applying Multiparty consensus on the results of the reconciliation process for transactions
rules and obligations stored in a permanent ledger. Permissioned access, partly to enforce privacy
to customers across obligation and also to protect commercially sensitive data. Validation allowing
regulators, banks, participant organizations to independently verify the state of their transactions and
and other industry the integrity of the system.
participants

required by participants in wholesale financial
markets.”
Using blockchain technology for Project
Maison, “allows the application to provide a single,
immutable record of mortgage transactions and
interpret regulator rules on a distributed ledger.”
The project team identified three major benefits
of a blockchain solution for regulatory reporting:
1. Enhancing data quality and standardizing
formatting
2. Improving governance, transparency,
and accountability across the mortgage
product lifecycle
3. Consistently interpreting and applying
rules and obligations to customers across
regulators, banks, and other industry
participants. 25
The project team chose to use R3’s Corda
Enterprise for the blockchain solution because
Corda’s properties (which are outlined in Table 2)
map well onto the Project Maison benefits.
The proof-of-concept Project Maison system
was designed to allow, at the interorganizational
level, the future inclusion of other banks,
mortgage providers, and other players and
thus achieve industry-level interoperability and
standardization. For example, the plan was to
extend the consortium to include the Bank of
England, property lawyers, the U.K. Land Registry,
25  Developed from Rauchs, M. et al, op. cit., 2018.
the Council of Mortgage Lenders, other competing
banks and lenders, and potentially Her Majesty’s
Revenue and Customs (the U.K.’s tax collector).
The head of Emerging Technology at one of the
two banks involved in creating the Project Maison
pilot summarized his view of the project outcome
and explained how it could affect his bank’s
business as follows:
“This project has shown that distributed
ledger technology, and specifically the Corda
[blockchain] platform, can give the regulator a
new tool capable of overseeing mortgage activity
much more quickly and efficiently than before
whilst greatly reducing data inconsistencies.
This also streamlines our business, enabling
us to simplify our processes and deliver better
experiences for our customers.”
As the proof-of-concept Project Maison system
took shape at the FCA’s 2017 TechSprint, R3
outlined its future intentions for the platform. Its
vision was for other U.K. mortgage lenders and
other regulatory bodies, along with academics, to
work toward a “production-ready version.”
Project Maison’s Decentralized
Architecture for Regulatory Reporting
of Mortgage Sales
Figure 2 depicts the decentralized architecture
of the project Maison system, which shows that
regulatory reporting is significantly different from
the current process shown in Figure 1 above.

26 MIS Quarterly Executive | March 2020 (19:1) misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology
This architecture allows for the future extension
of the solution to other products and regulatory
reports. An important difference between the R3
platform and public, permissionless blockchains,
such as those often used for cryptocurrencies,26
is that it is a permission-based system that allows
different data to be shared across the systems’
nodes. Each participant (banks and the FCA) has
access to a node, but the FCA’s node has access
to all the data while a bank’s node only contains
data relating to that bank, not data relating to
competitors (i.e., other banks).
A Project Maison team leader described the
system’s decentralized architecture: “Banks
and the regulator actively hold nodes on a
blockchain network that enables point-to-point
communication and so improves data privacy.” The
consequence of this, he believes, is that,
“Blockchain enables the capability for a
single and shared data entity model across
institutions, using the data attributes from
regulatory reports and regulator data validation
rules which are modeled on the ledger but
previously done in the regulator’s gateway
system. This design aims to enforce a consistent
system of record keeping for mortgages across
institutions and correspondingly a consistent
application of regulatory rules across banks.”
Another stakeholder suggested that,
“The Maison solution demonstrates that we
can re-imagine regulatory reporting across
the industry by moving toward a near real-
time and transparent regulatory oversight
model and solving data quality issues at source,
with associated benefits for both banks and
regulators.”
Three Project Maison Use Cases
The Project Maison team, in collaboration
with the FCA, identified three key Project Maison
use cases—continuous regulatory reporting,
mortgage switching, and third-party involvement.
Use Case 1: Enabling Continuous
Regulatory Reporting. The Project Maison
prototype allows a new mortgage to be booked
directly onto the blockchain, perhaps at a bank’s
26  Markus, M. L., Steinfield, C. W. and Wigand, R. T. “Industry-
Wide Information Systems Standardization as Collective Action: the
Case of the U.S. Residential Mortgage Industry,” MIS Quarterly (30:
Special Issue), August 2006, pp. 439-465.
high street branch or through a centralized
call center or by a financial intermediary with
access to the system. The mortgage is added to
the bank’s node and shared with the FCA’s node.
As a result, the regulator has the capability to
receive data updates at source and can raise
any regulatory “issues” across a mortgage’s
lifecycle via a real time dashboard. The Maison
system provides an upstream and near real-time
data feed to the regulator, as data is populated
throughout the mortgage sales process. This
provides the regulator with the capability to raise
queries in real-time because it now has a holistic
industry-wide picture of mortgage products sold
by different banks. The data previously provided
via the various forms can now be extracted
directly by the regulator and aggregated in its
business intelligence data warehouse, where it
can be used to perform risk-based calculations.
Use Case 2: Enabling A Mortgage Switching
Service. The aim of the second use case is to
share moved mortgage records seamlessly among
banks and the regulator. In the U.K., it is common
for consumers to switch their mortgages from
one provider to another. Typically, mortgage
products will run for between two and five years,
with consumers locked into fixed or variable
interest rates during that period. At the end of
the period, a consumer may switch to a different
mortgage provider or accept a higher interest rate
for the remaining mortgage lifespan. One Project
Maison stakeholder said that,
“The Maison system demonstrates the
ability to build an automated and frictionless
mechanism for mortgage switching between
mortgage providers on the system, ultimately
enhancing the customer experience and
increasing competition in the market.”
For example, if a customer actions a mortgage
switch from Bank 1 to Bank 2, a mortgage request
is sent from Bank 2’s node to Bank 1’s node. In
this way, Bank 2’s node receives the customer
approval and mortgage product details from Bank
1’s node. Bank 1 then sends a “closed mortgage”
message to the FCA’s node while Bank 2 sends the
new mortgage contract details to the FCA’s node.
Use Case 3: Involving Third Parties (Future
Extension). The FCA viewed Project Maison to be
a success and expressed a desire to continue the
collaboration, stating,
March 2020 (19:1) | MIS Quarterly Executive 27
A Case Study of Using Blockchain Technology in Regulatory Technology

Table 3: Potential Benefits of a Decentralized Architecture for Regulatory Reporting

Potential
Description
Benefits
1. Data Quality and Formatting
Consistent operational control process and shared mortgage system of record intrinsically
reduce data quality problems.
Real-time (and more granular) data oversight would support more effective policy decisions at a
Enhanced
faster rate with the ability to link across reports that currently have different reporting cycles.
data
Reduced management time on ensuring data quality needed for quarterly mortgage cycle and
quality and
ad hoc regulator requests.
transparency
Removing need for downstream validation, reconciliation, and remediation, as data accuracy is
across the
increased due to the reduction of manual processing.
mortgage
Reduced burden and timely reporting, with reduced risk of errors, late returns, and regulatory
lifecycle
fines (reputational risk) due to automation and upstream regulatory oversight.
No duplication and need for formal resubmissions, as data is shared with regulator once; can be
amended in real time and then be used to extract different reports for different purposes.
Data quality team benefits from consistent mortgage system of record across reporting
Regulator institutions, intrinsically reducing data-quality issues.
benefits Mortgage sector team receives better quality datasets and more potential to consistently match
mortgage records and link across reports (currently with different reporting cycles).
2. Governance, Transparency, and Accountability
Reduced cost of storing and processing data, as well as project cost associated with change.
System decommissioning—e.g., separate regulatory reporting systems and third-party gateways
Reductions in
no longer required as shared mortgage system of record directly interfaces with regulator’s
operational
system. Potential for consolidation on the regulator side also.
risk, people,
Overhead of operational cycle. The system could also be extended upstream into the mortgage
processes,
process itself and achieve additional cost benefits across mortgage operations.
systems, and
Reduced systems’ risk by avoiding having to collate all data for batched reports and potential
data storage/
data loss.
reconciliation
Enhanced control and potential audit benefits due to streamlined process and audit trail
capability.
Orphan data—potential to resolve current issue when mortgages are moved/sold from one
Regulator institution to another.
benefits System cost—real-time data flow streamlines data process (and cost) associated with current
batching cycles.
3. Consistently Interpreting and Applying Rules and Obligations to Customers
A consistent and sharable system of record across banks would enable instant access to
mortgage records across institutions and ease of switching for customers—much like with other
Enhanced
accounts; subject to customer consent and bank legal review.
customer
The Corda permissioned network and point-to-point messaging enforces privacy requirements
experience
and enables mortgage records to be shared seamlessly.
and increased
Having other third parties such as the Land Registry on the blockchain would increase mortgage
mortgage
application speed (reduce time from application to offer) via a transparent digital signature
application
model.
speed
Potential to enable faster credit approvals and reduce management time (the system can create
a history of customer risk profiles across firms).
Regulatory reporting and business intelligence teams—potential for cross-industry standardized
Regulator reporting (shared interface with in-house solutions as required).
benefits Supervision team—real-time oversight offers potential for less hands-on supervision, helping to
eliminate inconsistencies.

28 MIS Quarterly Executive | March 2020 (19:1) misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology
“This collaboration has demonstrated how
blockchain’s shared data model can enable
continuous regulatory reporting for financial
institutions at comparatively low cost. Mortgage
data are reported to us within seconds of the
transaction being finalized within a bank, which
is a marked improvement over current quarterly
reporting. As the prototype has been successful
with benefits to both us and the banks involved,
we are now seeking to move to a pilot with more
participants and live mortgage data.”27
A Project Maison team member stressed the
potential of the system to scale if more players
were added as nodes.
He believes that “The Maison solution
demonstrates that we could extend the network
beyond banks and the regulator to include the
other third-party actors that currently need to
be coordinated to reach consensus on the validity
of a loan, with a blockchain-based attestation
model to increase the speed of new mortgage
applications.”
Multiple third parties could be included in
the new mortgage regulatory reporting process.
For example, tax authorities, lawyers, the
Land Registry and surveyors could have nodes
on the network and enable a series of data
validation runs in a distributed and transparent
verification model. Bringing these other players
into the blockchain would enable a consistent
interorganizational system for mortgage records.
Potential Benefits of the Project Maison
System
Table 3 summarizes the potential benefits
of Project Maison’s decentralized architecture
shared by the project team.
Comparing Tables 1, 2, and 3 highlights how
the three proposed benefits of Project Maison (to
enhance data quality and standardize formatting,
to improve governance, transparency, and
accountability across the mortgage lifecycle,
and to consistently interpret and apply rules
and obligations to customers, regulators, banks,
and other industry participants) are related to
the properties of the Corda blockchain platform
27  Distributed Ledger Technology Feedback Statement on Discus-
sion Paper 17/03, Financial Conduct Authority, December 18, 2017,
available at https://conpolicy.org/en/news-detail/distributed-ledger-
technology-feedback-statement-on-discussion-paper-1703/.
(Table 2). The benefits listed provided by the
decentralized Project Maison architecture (Table
3) address the problems of the current regulatory
reporting process (Table 1). This comparison
maps the relationships between the properties of
R3’s Corda blockchain platform and the problems
inherent in the current process with the potential
benefits of the Project Maison blockchain system.
These relationships show why the Project Maison
team was right to base the prototype system on
R3’s Corda platform.
Note, however, that some of the benefits
(e.g., data quality improvements and process
automation) could also be gained by digitizing
processes and automating processes through a
centralized database operated by the regulator.
This option was not acceptable to the FCA, which
did not want to become solely responsible for
operating and maintaining a key, and possibly
costly, piece of market infrastructure.28 Thus, an
attraction of adopting R3’s Corda platform for
Project Maison was that its decentralized nature
meant it could be operated and maintained by
several parties.
Regtech Governance
Challenges
Despite all the benefits proven by the
prototype, Project Maison was not scaled into
production because the stakeholders found that
its advantages involved a trade-off between
increased efficiency and effectiveness as well
as changes to the supervisory model, with
related losses of control. These losses were not
compensated for by a corresponding reduction
in compliance responsibilities and governance-
related obligations for the regulated businesses.
As a consequence, some participants felt that
the operational benefits came at too high a cost
in terms of losing full control of the process
outcomes for which they were legally responsible
for.
28  However, this approach was adopted by the Society for
Worldwide Interbank Financial Telecommunication (SWIFT), which
provides a worldwide network (market infrastructure) that facili-
tate global transactions by allowing financial organizations to send
information to one another. Organizations pay to become members
of SWIFT and then have access to SWIFT’s technologies. For more
information, see Scott, S. V. and Zachariadis, M. “Origins and devel-
opment of SWIFT, 1973–2009,” Business History (54:3), June 2012,
pp. 462-482.
March 2020 (19:1) | MIS Quarterly Executive 29
A Case Study of Using Blockchain Technology in Regulatory Technology

Table 4: Summary of Governance Challenges, Consequences and Mitigation Practices

Challenge Positive Consequences Negative Consequences Mitigation Practices

Firms should weigh

1. Moving Banks lose ability to manage cost reductions through
Increased speed and
from reactive compliance risks internally automation against
transparency of data
regulatory before reporting to a potential greater exposure
reporting for regulators
oversight to regulator. to supervision and
Increased automated
proactive Increased oversight may lead sanctioning, and carefully
processes and data efficiency
regulatory to more fines and reputational consider at what point of
for banks.
oversight damage for banks. development to involve
regulators.
Increased speed and
Consider rules on how
2. Moving transparency of calculations
Loss of control over breaches are investigated
from internal for regulators.
aggregations and calculations and managed early on, and
to external Reduction of operational
for which the banks are legally whether the calculations
accountability risk and related resources in
responsible. should occur on or off the
for calculations aggregating and calculating
blockchain.
risk for banks.
Evaluate cost reductions
against loss of control
of calculations and
discretionary cases
Greater data efficiency and pain of updating/
and interoperability across replacing business-critical
3. Moving from stakeholders leads to Poor outcomes for some infrastructures.
discretion to better experiences for parties as the ability to Where there is a low
standardized some customers, as well as exercise discretion on a case- appetite for proactive
decisions cost savings, as rules are by-case basis is reduced. supervision and where
consistently applied across there is also a low need
stakeholders. for standardization and
automation, organizations
should carefully weigh if
a blockchain solution is
required.
When forming the
consortium, organizations
Key stakeholders may should be clear about how
4. Moving from
be unwilling to support costs and responsibilities
firm-controlled Reduced operational risks and
developing a business-critical will be shared and to what
software increased efficiencies through
infrastructure run by one or degree “rent-seeking”29
to shared decentralized systems.
two stakeholders with whom behaviors will undermine
software
they compete. the ability to gain the
critical mass of participants
necessary to succeed.

Although the technology worked, we identified
four governance challenges that stalled Project
Maison. These challenges may apply more
broadly to other industries where frequent
reports to other parties are mandated and where
sanctions may be applied by one member of
a blockchain consortium on another, perhaps
through a regulatory authority.
While a blockchain application can increase
efficiency for all participants by standardizing

30 MIS Quarterly Executive | March 2020 (19:1) misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology
data, rules and reporting, it can also reduce some
of the participants’ competitive advantage and
leave them more vulnerable to risks, or (as in
the case of Project Maison) more vulnerable to
increased (and unwelcome) forms of scrutiny
by regulators. In the early days of shared
applications, managers did not always recognize
the implications. The four governance challenges
are summarized in Table 4, together with their
positive and negative consequences for shared
blockchain applications and practices for
mitigating the challenges.29
Challenge 1: Moving from Reactive to
Proactive Supervision
The transparency and automation provided by
blockchain technologies may reduce managers’
control over how compliance is internally
managed. Firms should weigh cost reductions
through automation against the potential for
greater exposure to supervision and sanctioning.
The Project Maison architecture provides the FCA
with real-time monitoring and automates what
are currently very manual processes in both the
regulator and regulated firms. This could result
in the regulator fining more firms more often,
perhaps in real time through smart contracts, and
so reduces the firms’ opportunities to respond to
and negotiate with the regulator. If made public,
fines may also create reputational damage. Thus,
the move to real-time monitoring and sanctioning
may diminish a firm’s ability to interact effectively
with shareholders and the media to mitigate the
reputational damage caused by fines.
Ultimately, some Project Maison stakeholders
were resistant to having the regulator play a
timelier and more proactive role, which would
reduce the ability of managers in regulated
firms to self-manage compliance arrangements.
A Project Maison team member suggested that
“[The Maison system should allow the regulator]
to be more proactive … [and] more responsive, and
[the regulator has] the opportunity to be more
efficient and consistent.”
Using blockchain technology to automate
regulatory reporting could potentially allow
regulators to move from reactively scouring
records for problematic events and then
investigating causality, toward proactively
29  Behaviors that undermine the ability to gain the critical mass of
participants necessary to succeed.
monitoring events and addressing problems at
source. This is a significant change to the current
situation where a bank is able to run its own
investigation and then self-report to the regulator
if an issue is found.
In managing this challenge, regulated firms
should weigh cost reductions through automation
against potential greater exposure to supervision
and sanctioning. They should also consider when
to involve the regulator in the design process. If
this is done too early without resolving issues
of supervision and monitoring between the
regulated firms, the regulator may influence
the design in a way that is unattractive to other
stakeholders. On the other hand, if the regulator
is involved too late, the system may not meet the
regulator’s requirements.
Challenge 2: Moving from Internal to
External Accountability for Calculations
Project Maison challenges existing norms for
who is responsible and accountable for regulatory
outcomes and assumptions derived from data
aggregation and resultant calculations. Currently,
banks perform these functions, and the banks
involved with Project Maison were reluctant to
allow the regulator access to raw data to enable
the regulator to do its own calculations on the
blockchain.
This second challenge is closely related to
the first in that it also requires considerations of
how accountability and sanctioning function. The
first governance challenge addresses the degrees
to which sanctioning organizations can “see
over the wall” of the reporting firm. This second
challenge focuses on who is accountable for data
aggregation and calculations and the degree
to which a regulated firm is happy to “throw
its raw data over the wall” to the consortium,
and so further relinquish control over related
calculations.
A member of the Project Maison team
expressed his view about the ambiguity of
responsibility succinctly:
“I tend to disagree with the lawyers on
this one in that just because you’re using a
blockchain or just because you’re using a piece of
code, it doesn’t change corporate or regulatory
accountability. It’s not just about making the
data available. Firms still need to own and
be accountable for the calculations and the
March 2020 (19:1) | MIS Quarterly Executive 31
A Case Study of Using Blockchain Technology in Regulatory Technology
algorithm they run on that data. So, this is where
I disagree with the Maison solution where it just
makes the data available. I think it should be the
data and the calculation.”
A major difference between centralized
and decentralized approaches for regulatory
reporting is where data is aggregated, where
key calculations occur, and where the related
responsibilities and legal liabilities lie. The
current centralized approach requires that banks
perform these calculations, while the Project
Maison system allows the regulator to perform
this task after details of individual mortgage
contracts are shared through the blockchain
architecture.
In managing this governance challenge, it
is therefore important to establish early on
(i.e. when designing the regtech system and
forming the consortium) rules on how regulatory
breaches are investigated and managed, and
whether the related calculations occur on or
off the blockchain. For example, agreements
may be reached for the real-time reporting and
monitoring capabilities of the system to trigger
penalties only if mistakes are made on a repeated
basis or if it is clear that a breach has proved
detrimental to a customer or created a significant
risk.
Challenge 3: Moving from Discretion to
Standardized Decisions
The banks involved with Project Maison
welcomed the standardization required by the
system because it made data handling more
efficient, but soon realized that standardization
limited their ability to make discretionary
decisions for individual customers. A project team
member commented
“There’s a bedrock of data-centric
mathematical rules that absolutely lends itself to
codification and decentralization through some
technology like blockchain. The implementation
of a decentralized approach and resultant
restructuring of compliance practices paves
the way for standardizing data definitions and
shared data models.”
Blockchain technology can enable the reuse of
data and create more efficiency in data handling,
thus contributing to an increase in reporting
speeds and a decrease in compliance costs. A
32 MIS Quarterly Executive | March 2020 (19:1)
Project Maison team member expressed his
ambition for the system in this way:
“At the moment, what happens is, much of
that data can’t be reused [for other reports]
because we don’t specify a data standard or a
data specification for lending as an example.
So, what happens is data is collected multiple
times with very little reuse, which then generates
overheads for the firms to create it and
overheads for the regulators to collect it. So, if
we could come up with an unambiguous data
specification and codified rules, we don’t have to
copy and move massive amounts of data around
the industry as we do today.”
However, standardization may also create
poorer outcomes for customers because it can
lead to automated inflexible processes. Our
interviewees highlighted a tension between
standardized data and processes across the
blockchain and opportunities to exercise
discretion. By moving key calculations from a
bank to the regulator (see Governance Challenge
2), lenders lose a degree of discretion in the loans
they make. A member of the Project Maison team
member explained,
“What you’re calculating is the loan-to-
income ratio to make sure that you’re lending
responsibly. At the individual customer level,
we can exercise discretion if we think that the
customer’s a good risk. So, at an individual
level, you’re going to get a different result than
you will from the aggregated result. Because
obviously, at the aggregated level, we’re not
going to give discretion to every customer.”
In managing this governance challenge,
regulated organizations should remember that
discretionary decision-making often requires
data pooled from multiple systems, including
legacy systems. When selecting vendors and
blockchain platforms for blockchain systems,
consortium members should therefore consider
the potential of the blockchain system to offer
strong interoperability capabilities. They should
also consider the architectural design of the
regtech system.
In fact, they should consider whether a
blockchain solution is even appropriate. Where
the appetite for proactive supervision is low and
where there is a low need for standardization
and automation, organizations should carefully
misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology
weigh if a blockchain solution is necessary. If
much of the reporting is nonstandardized and
the regulator does not accrue any advantages
in terms of cost or enhanced risk management,
then a decentralized approach may not be the
best option. In this scenario, each relationship
with the regulator may be bespoke and so better
controlled centrally on a one-to-one basis.
Challenge 4: Moving from Firm-
Controlled Software to Shared Software
Distributed ledgers still need someone to
operate and maintain services and the underlying
hardware and software. A natural concern of
partners in a blockchain consortium is the
way in which responsibilities for this software
are shared across applications and the related
dynamics of control and ownership. One Project
Maison stakeholder complained,
“What’s happened is that the market
infrastructure that sits beneath banks has grown
fat over the many years [during which] banking
had a high profit margin, [but] as our margins
get cut, we are looking to try and reduce our
[operational] cost base. Only some of that cost
base can be reduced internally when a larger
percentage of our cost base is actually outside
of the bank in shared market utilities—firms
which provide key pieces of infrastructure. But
in handing over the monopoly effect to them,
the network effect to them, they have then got
pricing power that they can use against us.”
Others questioned whether adopting a
proprietary platform for regulatory reporting
would create barriers to entry because related
costs would prevent smaller banks from directly
integrating with the blockchain and would create
the need for additional gateways and layers of
technical complexity.
The development and ownership of business-
critical infrastructures by one or two key players
may be an extremely unattractive proposition
to other industry participants, some of whom
may be in competition with those initially
involved in developing the blockchain system
and may choose not to join the consortium. In
theory, regulatory authorities could require
organizations to use a system, but regulators are
often keen to remain independent and objective
and so avoid expressing a preference for one
system over another.
In managing this governance challenge,
regulated firms should be clear when forming
a blockchain consortium about how the costs
of and responsibilities for shared software will
be shared and to what degree rent-seeking
behaviors will undermine the ability to gain
the critical mass of participants necessary to
succeed. Regulators often require that monitoring
and compliance systems should not provide
any advantage for any of the regulated firms
using them and should not be a barrier to entry
for other firms. To avoid barriers to scaling,
developers of pilot systems should consider at
an early stage the implications of ownership and
intellectual property. They should consult with
key parties, including competitors, to ensure
that all potential participants are appropriately
incentivized to join the consortium now and in
the future.
Concluding Comments
Our study of Project Maison has illustrated
that industry-wide blockchains for regulatory
reporting offer several use cases and benefits.
Benefits include greater transparency, lower
compliance costs through automation and
standardization, and enhanced customer
experience through speeding up mortgage
processing times. However, these benefits also
create governance challenges. The trade-offs of
the blockchain-based regtech system outlined
in this case study (decentralization, proactive
supervision, loss of discretion, standardization,
loss of control over data and calculations)
may fundamentally change the nature of the
relationship between regulated firms and the
regulator, which may not be to the advantage
of all and may introduce new forms of risk over
time.
In conclusion, although Project Maison was
not scaled into production, the lessons learned
from it paved the way for further and wider
collaborations between the FCA and financial
March 2020 (19:1) | MIS Quarterly Executive 33
A Case Study of Using Blockchain Technology in Regulatory Technology

Primary and Secondary Data Collection

Primary Data Collection
Phase 1 Phase 2
Stakeholders
(February 2017-August (September 2017-March
2017) 2018)
The U.K. regulator (Financial Conduct Authority) and
Attended meetings and Attended meetings and
the Bank of England
demonstrations demonstrations
(16 individuals)
Regulators from other countries Attended meetings and Attended meetings and
(3 individuals) demonstrations demonstrations
Attended/presented
Accounting and legal advisory firms at meetings and Attended meetings and
(6 individuals) demonstrations + demonstrations
4 interviews
Attended/presented Attended/presented
Project Maison team at meetings and at meetings and
(2 banks; 13 individuals) demonstrations + demonstrations +
14 Interviews 8 Interviews
Attended/presented
Other banks Attended meetings and
at meetings and
(5 individuals) demonstrations
demonstrations
Attended/presented Attended/presented
R3 (provider of Corda Enterprise) at meetings and at meetings and
(7 individuals) demonstrations + demonstrations +
4 Interviews 2 Interviews)
Attended/presented Attended/presented
Other technology firms
at meetings and at meetings and
(6 individuals)
demonstrations demonstrations
Secondary Data Sources
Presentations, notes, and
Project Maison Documentation on
materials provided by
documents supplied by regulatory reporting Press coverage of Project
other banks, technology
the two banks, the FCA rules, forms and systems Maison
providers, and advisory
and R3 provided by the FCA
firms

organizations aimed at further exploring and Appendix A: Using Blockchain

improving regulatory reporting.30
Technology in Enterprise
Applications

The emergence of blockchain technology

30  Following Project Maison, the Financial Conduct Authority
embarked on a larger digital regulatory reporting project with a much
wider group of stakeholders, which at the time of writing is ongoing.
For more information, see: Digital regulatory reporting, Financial
Conduct Authority, November 1, 2017, available at https://www.fca.
org.uk/digital-regulatory-reporting.
has been accompanied by much hype and
enthusiasm, and some skepticism, from
players as varied as regulators, technology
providers, major corporations, investors, start-
ups and governments.31 Spurred by the initial
31  Lacity, M. C. A Manager’s Guide to Blockchains for Business:
From Knowing What to Knowing How, SB Publishing, 2018.

34 MIS Quarterly Executive | March 2020 (19:1) misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology
enthusiasm associated with Bitcoin and other
cryptocurrencies, many adopted the view that
blockchain software or similar forms of DLT
could be used to restructure vast swathes of
digital information processing. Countless papers
have predicted that blockchain applications will
“disrupt” financial services, the law, logistics
and supply chains, government services, voting,
and many other trust-based activities.32 These
predictions are grounded in assumptions about
the “insurgent” nature of the technology and
the radical reconceptualization necessary when
data about assets, risks, and responsibilities are
decentralized through blockchains.33
There are many examples of enterprise
blockchains (mostly announced but not yet fully
implemented) expected to yield positive results.
For example, the state of Delaware intends that
companies incorporated in the state will issue
their shares on a blockchain.34 This will allow
transactions to be settled on a near real-time
basis and reduce transaction costs. Another
example is the two-year bond issued by the
World Bank and Australia’s largest bank, the
Commonwealth Bank of Australia, exclusively
through a blockchain system.35 This issue will
raise A$110 million ($76 million36).
Proponents of blockchain and DLT argue that
decentralized architectures have the potential
to establish new and highly effective forms
of compliance by reimagining transparency,
decision rights, incentives, and accountability
while increasing standardization and degrees
of automation.37 Related managerial challenges
for enterprise blockchains in terms of shared
governance across participants (e.g., in a supply
chain) include reaching a critical mass of adopters
and the associated need for cohesion through
32  Werbach, K. The Blockchain and the New Architecture of Trust,
The MIT Press, 2018.
33  Rauchs, M., et al., op cit., August 2018.
34  Mearian, L. “Delaware to test blockchain-based business filing
system,” Computerworld, available at https://www.computerworld.
com/article/3289484/blockchain/delaware-to-test-blockchain-based-
business-filing-system.html.
35  World Bank Prices First Global Blockchain Bond, Raising
A$110 Million, Press Release, The World Bank, 23/24 August
2018, available at https://www.worldbank.org/en/news/press-
release/2018/08/23/world-bank-prices-first-global-blockchain-bond-
raising-a110-million.
36  Currency conversion rate as at January 2020.
37  Beck, R., Müller-Bloch, C. and King, J. L. “Governance in the
Blockchain Economy: A Framework and Research Agenda,” Journal
of the Association for Information Systems (19:10), October 2018, pp.
1020-1034.
unified standards and even regulatory change.38
These challenges mean that it is common for
blockchain implementations to go through
multiple phases of experimentation before being
abandoned or implemented.39
Appendix B: Research
Methodology
Our plan was to adopt an “illustrative case”
sampling strategy that required a search
for information-rich cases illustrating how
blockchain systems can change imbedded
arrangements for governance and compliance.40
Due to the relatively recent introduction and
limited adoption of blockchain technology,
illustrative cases were not easy to find, so we
focused just on the Project Maison case.
We carried out field work in two phases. The
first phase (February 2017 to August 2017)
involved understanding current arrangements
for regulatory reporting and how the Project
Maison architecture enables the move toward
a decentralized architecture. In doing so, we
sought to understand key stakeholders’ views on
the problems (Table 1) inherent in the current
regulatory reporting examining process and the
potential benefits (Table 3) of the Project Maison
system. The second phase (September 2017
to March 2018) allowed time for stakeholders
to reflect on the implications of the proposed
changes, and focused on understanding how
the system relates to the social and economic
principles that are enforced through regulatory
regimes.
The authors participated in three industry
meetings41 attended by Project Maison
stakeholders to discuss the use of blockchain
technology for financial regulation, as well as
two demonstrations of the system, one held at
University College London (UCL) and the other at
38  Lacity, M. C. “Addressing Key Challenges to Making Enterprise
Blockchain Applications a Reality,” MIS Quarterly Executive (17:3),
September 2018, pp. 201-222.
39  Du, W. D., Pan, S. L., Leidner, D. E., and Ying, W. “Affor-
dances, experimentation and actualization of FinTech: A blockchain
implementation study,” The Journal of Strategic Information Systems
(28:1), March 2019, pp. 50-65.
40  Patton, M. Q. Qualitative Evaluation and Research Methods,
Sage Publications, 1990.
41  The meetings were funded through a grant from The Engineer-
ing and Physical Sciences Research Council (EPSRC) for this and
other related research into algorithmic regulation.
March 2020 (19:1) | MIS Quarterly Executive 35
A Case Study of Using Blockchain Technology in Regulatory Technology
the Bank of England. We made notes of the group
discussions and presentations by stakeholders.
The data in these notes was supplemented by
semistructured interviews with groups and
individuals. Thus, the body of data on which this
study is based comprises a mix of primary and
secondary data collected over the two phases of
the research between February 2017 March 2018.
The strategy for data collection involved
interviewing a diverse range of stakeholders.42
Semistructured interviews have previously
proved successful in providing the necessary
depth to explore complex and dynamic regulatory
phenomena.43 Such interviews gave us the
flexibility to pursue new topics as the discussion
evolved, and as responses to the decentralized
architecture emerged and became better
defined over the two phases of our research.44
Interviewers were able to frame what was
important in understanding the behaviors, events,
and patterns related to the research topic.45
The table above summarizes the Project
Maison stakeholders who participated in
interviews, meetings, or demonstrations of the
system. The table also summarizes the secondary
data collected.
Typically, interviewees were recontacted
during transcription and analysis to provide
clarification on key issues. Secondary data was
also collected from Project Maison stakeholders.
An important source of secondary data was
the documents created by R3, the blockchain
technology provider, and the Project Maison
team, as well as presentation slides and materials,
which included notes on comments made by
stakeholders during demonstrations of the
Project Maison system.
42  Miles, M. B. and Huberman, M. Qualitative Data Analysis: An
Expanded Sourcebook (2nd ed.), Sage Publications, 1994.
43  See: 1) Tsatsou, P., Elaluf-Calderwood, S. and Liebenau, J.
“Towards a Taxonomy for Regulatory Issues in a Digital Business
Ecosystem in the EU,” Journal of Information Technology (25:3),
September 2010, pp. 288-307; and 2) Kvale, S. and Brinkmann, S.
InterViews: Learning the Craft of Qualitative Research Interviewing,
Sage Publications, 2009.
44 Ibid
45  Bryman, A. Social Research Methods, Oxford University Press,
2008.
36 MIS Quarterly Executive | March 2020 (19:1)
About the Authors
Daniel Gozman
Daniel Gozman (daniel.gozman@sydney.
edu.au) is the director of Engaged Research at
the University of Sydney Business School and
an Honorary Fellow at Henley Business School
at the University of Reading, U.K. Currently, his
work focuses on the intersection between policy,
emergent technology and innovation. Daniel has
acted as an academic advisor to international
law firms, analyst groups and global technology
firms. He is a senior editor for the Journal
of Information Technology and an associate
editor of Electronic Commerce Research and
Applications. Prior to academia, Daniel worked for
a global management consultancy and a big four
accounting firm.
Jonathan Liebenau
Jonathan Liebenau (j.m.liebenau@lse.ac.uk)
is a reader in technology management at the
London School of Economics and has been a
visiting professor at the University of Sydney,
Yonsei University (Seoul), American University
in Cairo, Istanbul Bilgi University, and at the
Columbia University Graduate School of Business
and the School of Engineering and Applied
Sciences. He has conducted research on various
high-tech industries, on skilled labor markets, and
on innovation in digital economy companies in
China. His current focus is on fintech companies,
regulatory technologies, and new business
models in financial services.
Tomaso Aste
Tomaso Aste (t.aste@ucl.ac.uk) is professor
of complexity science at UCL Computer Science
Department, London. A trained physicist,
Tomaso has made substantial contributions to
research on complex structures analysis, financial
systems modeling, artificial intelligence and
machine learning. His passion is investigating
the interplay between technologies and socio-
economic systems. Tomaso is leading research on
complexity science, network theory, blockchain
technologies and smart contracts, where he
collaborates with regulators and financial
institutions. He is co-founder and scientific
director of the UCL Centre for Blockchain
misqe.org | © 2020 University of Minnesota
 A Case Study of Using Blockchain Technology in Regulatory Technology

Technologies, and founder and head of the

Financial Computing and Analytics Group at UCL.

March 2020 (19:1) | MIS Quarterly Executive 37

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